These exchange-traded funds own equities from diverse emerging markets: Brazil, Russia, India, China and others.
Growth will, or should be, rapid in countries that are just now creating a big middle class. But economic growth translates very imperfectly into stock market returns. There’s no reason that the fruits of expansion have to accrue to the owners of publicly traded companies; most or all may land in the hands of workers, private companies and governments.
Emerging markets have long stretches of good results and long stretches of bad ones. The biggest fund here, Vanguard FTSE Emerging Markets Index (VWO), lost money over the five years 2011 through 2015, did well in 2016-2017, and is on course to at best break even in the first half of 2018. Over the past decade it has barely kept up with inflation, notwithstanding that China’s economy has been racing ahead.
Conspicuously absent here is iShares MSCI Emerging Markets (EEM), disqualified because its 0.69% expense ratio puts it above the 0.4% cutoff for Best ETFs, even after credit is given for securities lending revenue. EEM used to be the leader in this sector, but lost assets to the cheaper Vanguard fund. The Morningstar analyst covering EEM sums up the problem: “It accurately reflects the composition of the emerging-markets universe with low turnover, but it is hard to justify its fee when there are similar index funds available for a fraction of the price.”
Contrast the sister fund from BlackRock, iShares Core MSCI Emerging (IEMG), a terrific buy. With a boost from securities lending that erases most of its already low 0.14% expense ratio, this fund lets you hold stocks like Tencent and Alibaba almost free of fees.
[Looking for an exchange-traded fund? See the full coverage of Forbes Best ETFs.]
Single-country emerging-market portfolios are in the Best ETFs: Single-Country.
Best ETFs: Emerging Markets
|Ticker||Exchange-Traded Fund||Holding Cost1||Liquidity Score2||Assets ($bil)|
|IEMG||iShares Core MSCI Emerging Markets*||$10||A+||49.9|
|SPEM||SPDR Portfolio Emerging Markets*||129||B||1.8|
|VWO||Vanguard FTSE Emerging Markets||156||A||65.9|
|SCHE||Schwab Emerging Markets Equity||204||A||5.2|
|EEMV||iShares Edge MSCI Min Vol Emerg Mkts||301||B||4.7|
|EEMS||iShares MSCI Emerging Markets Small-Cap||342||C||0.3|
|ADRE||Bldrs Emerging Markets 50 ADR||358||D||0.2|
|ESGE||iShares MSCI EM ESG Optimized||388||B||0.3|
|DGRE||WisdomTree Emerging Mkts Qual Div Gr||488||D||0.1|
|EMCG||WisdomTree Emerging Markets Cnsmr Gr||511||F||0.05|
|EELV||Invesco S&P Em Mkts Low Volatil||518||C||0.7|
|XSOE||WisdomTree EmMkts ex-Stt-Ownd Entrprs||549||C||0.1|
|DVEM||WisdomTree Emerging Markets Dividend||566||F||0.03|
|EEMX||SPDR MSCI Em Mkts Fossil Fuel Free||580||F||0.02|
|EEMO||Invesco S&P Emerg Mkts Momentum||588||C||0.02|
|QEMM||SPDR MSCI Emerging Mkts StratcFacts||601||D||0.3|
|FNDE||Schwab Fundamental Emerg Mkts Lg Co||637||B||2.2|
*Best ETFs Honor Roll Member
1 Cumulative cost of holding a $10,000 position for a decade. Incorporates annual expense ratio, bid/ask spreads and cost offset from securities lending. 2Reflects bid/ask spreads and trading volume. A = easy to trade.
Data sources: Morningstar; Bloomberg; fund distributors.
Originally published at Forbes